Alcoa: Goldman Likes it For the Long Haul

By Mark Gongloff

Alcoa is due to kick off third-quarter earnings season after the closing bell today, and expectations for it are not high.

As Kelly Evans points out in Ahead of the Tape today, those lowered expectations — down to 22 cents a share from an earlier estimate of 34 cents — should only make it easier for Alcoa to beat them.

But still, there are worries a-plenty for Alcoa earnings, as there are for other commodity-reliant companies — and, for that matter, for corporate earnings more broadly.

After all, the same issues deviling aluminum prices and Alcoa — slowdowns in China and elsewhere around the world — could become problems for earnings more broadly.

In a note today previewing earnings for Alcoa and other metals and mining companies, Goldman Sachs acknowledges these fears, but says the longer-term picture is rosier:

While we view the recent correction in the base metal stocks as overdone, we do expect volatility to continue. We do not expect 3Q earnings to be much of a catalyst. Although we believe that stocks reflect the earnings deterioration in 2H on the back of lower base metal prices, there could still be negative reaction to stock prices as estimates for 4Q are brought in line with the commodity prices. There are significant concerns in the market over the health of global economy and until these issues are resolved we expect the markets to remain volatile.

However, we continue to subscribe to our bullish medium- to long-term view for base metal demand and believe that emerging markets would remain in the driver seat for base metal consumption growth and these economies have a long way to get to the levels where the developed markets consume metals. We believe that China will achieve a soft landing and, if the developed economies were to slow down considerably, China could in fact deploy measures to stimulate its economy (albeit to a lesser degree than the last global financial crisis) which would help to partially offset a demand deterioration in developed countries.

Goldman has a “buy” rating on Alcoa and Freeport McMoRan, calling them “a good opportunity for investors who are willing to overlook current market volatility.”

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